Sunday, December 30, 2012

Multi-Product Portfolio Planning

One question I hear often is "How does product planning change in a multi-product environment?". While all of the key tenets of Product Management and Product Marketing continue to apply to ensure that you are building the right individual products, and taking them to market effectively, there are fundamental differences.

When faced with multiple products, the first factor to consider is that they all fit within the corporate vision and strategy. If products don't fit into the established strategy, you need to ask some very hard questions - while these businesses bring in revenue, they may prevent achieving the established goals and vision by distraction, consuming resources, and confusing customers.

When considering a portfolio, I often like to ask everyone "Should we build Ferraris?" - and the answer is a universal "NO - building Ferraris does not fit into our established strategy".  But this question and answer establishs that there is a line of what the organization should and should not be building (and that there is a strategy) - and you can zero in closer to establish where the line actually exists.

Assuming all products fit into the established strategy, the next big task is to allocated resources (R&D, marketing, go-to-market) based on product/market potential, and not on current revenues. One of the most erroneous statements ever made by a Product Manager is "my product is profitable so I am untouchable". Companies need not just profitable products, but products with high growth potential.

All companies have limited resources to invest and too many fall into the trap of allocating based upon product revenue or relative profitability e.g, let's take a look at a XYZ Corps revenue for a diverse product portfolio.

The above chart would lead many companies to make similar resource allocations - as we know, P&L is the common management mechanism in large companies and headcount is allocated based upon the product revenue and forecast growth.  However, resource allocation should be based on overall market opportunity and product managers often fail to make difficult decisions to prioritize investments effectively across multiple products.

There are numerous tools to help make these prioritization decisions, but they all acknowledge that  there are many factors that need to be considered, such as annual growth, market share, competitive landscape, route to markets, core competency, product maturity, etc.  One of the commonly used tools is the BCG Matrix, applying a scatter graph to rank the products on the basis of their relative market shares and growth rates, with sales revenue shown by the size of the bubble e.g: XYZ Corp product portfolio yields the following results:

Using this analysis we can start to pose some very interesting questions?

  • Should be investing more in Product 3? We have a great market share and high growth potential.
  • Is Product 2 viable?  Can we do better here? 
  • How much investment should we make in Product 1? We already have a great market share with lots of revenue.
  • Should we exit Product 4?

The BCG uses four terms to describe each of the quadrants:

  1. Stars are products with high market share in rapidly growing markets.  These businesses are often going to need additional resources to capitalize on their early success and are not yet profitable.
  2. Cash Cows have high market share in slow growing markets.  Look very closely at investment levels here and only do what is needed to maintain the business.  Over-investment in Cash-Cows is a huge problem that Product Managers must address, but this can be a very difficult and emotional process.
  3. Dogs have low market share in slow growing markets, and often break even, but should likely be sold off. Again, this can be a difficult and emotional process.
  4. Question Marks typically have low market share in markets growing rapidly.  They have the potential to become stars and ultimately Cash Cows.

One of the points made with BCG planning is that any successful company has a combination of Stars, Cash Cows, and Question Marks - you probably have some Dogs too, and they should be sold off if possible.  But the point is that not every product can be a Star, and all products go through different quadrants as they mature through the product lifecycle i.e. they start out Question Marks, become Stars, and then end up Cash Cows.

How to calculate product market share in another interesting topic, and many companies use PPH or PPPH analysis, where:
  • P = Product Line Coverage - what % of  market does the product target?
  • P = Presence - what % of the time do we get to propose our product?
  • P = Preference - what is the % share of market within our own channel partners?
  • H = Hit Rate - how often do we win the sale (%)?

P x P x P x H = MS

Multiplying PxPxPxH gives us a "market share" factor that can be used to evaluate the effect of different market strategies on the market share.

The BCG Matrix is just a tool, and like any tool, has positive and negative points. You can use many different methods the point is that you consider all the relevant factors when making portfolio decisions, and move investments to maximize overall returns.

The final dimension here is that successful portfolio planning relies heavily on effective relationships across product groups and a healthy dose of pragmatism. Here is where the organization with the best relationships between products teams is going to win - and the organization with the most silo-ed approach will likely fail. Nobody likes their product to be called a cash cow or a question mark - everyone wants to be the star - but we need to be realistic and look beyond our own products and work together to do what is best for the complete portfolio and entire company.

No comments:

Post a Comment